Working Paper: CEPR ID: DP673
Authors: Dalia Marin
Abstract: The paper sees countertrade - the tying of trade flows - as an insurance contract that mitigates contractual hazards and reduces the incentive for ex post `hold-up' when parties are `locked' in a relationship after they have made specific investment. This way tying is seen as a commitment device against renegotiation during contract execution when investments are sunk. Moreover, tying is seen as an institutional setting that is effective in securing technology spillovers from developed countries to Eastern Europe (PCPEs) and LDCs. Based on a sample of 230 countertrade contracts signed between firms in OECD countries and PCPEs and LDCs in the period 1984-8, this view of countertrade is found to be consistent with the data.
Keywords: countertrade; contract theory; trade policy; eastern europe
JEL Codes: F13; F14; 057
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Countertrade (L14) | mitigates contractual hazards (D86) |
| Countertrade (L14) | reduces incentives for ex post holdup (D86) |
| Extent of tying in countertrade contracts (L14) | risk-sharing features (D16) |
| Ex ante investments (G31) | degree of tying (Y80) |
| Ex ante investments (G31) | compensation ratio (J33) |
| Countertrade contracts (L14) | technology spillovers (O33) |